Inflation, Demand and OPEC Should Drive DIG Higher

Up until this point, the oil story has been somewhat perplexing. Investors couldn't get a handle on whether the WTI crude futures were trading too expensively in the high 40 dollar range because (1) U.S. dollar strength has been keeping the commodity cheap, (2) demand seems to have bottomed but the fundamentals of the economy are still headwinds, or (3) the inventories of refined gasoline and crude oil sitting in tankers hasn't made a convincing swing to negative growth.

As of Wednesday, the deflation threat is null and void. Bernanke is dumping cash from helicopters throughout the country's skyline pumping over a trillion more dollars into the money supply. On top of this, the current account deficit is shrinking and U.S. government debt is being bought by the Fed, which will cause the dollar to peak and begin to succumb to the inflationary forces from every angle.

The demand and inventory stories have shown tangible signs of bucking their recent trends that have left WTI crude at such low levels, as compared to their highs above 140. The argument that a bullish Greenback would keep WTI futures cheap has been the major force against the upward momentum of this "lifeblood" natural resource.

Another very important factor lies in the OPEC output cuts. Although the cartel hasn't formally announced further cuts, they have pressed for all members to cut to the agreed levels while members are averaging only 80% of the agreed cuts. U.S. WTI futures are trading higher on the increases in money supply but the global supply and demand equation remains the same and OPEC is likely to announce further cuts.

Rather than trying to play the cyclical swings of the USO or trying to pick a winning company, take a position on oil using the DIG ETF. It's an Ultra, so you know you're getting a solid return on your trade, and it is a great inflation hedge to your portfolio as we head forward through this cycle.

Comments

[Gary Gallo:]

The problum with DIG


DXO Mar 20 3.02 +0.09 3.07% 24,557,308
DIG Mar 20 21.81 -1.88 7.94% 18,662,748

Mar 21 07:23 PM

[zermux:]

Every attempt by bernanke to kill deflation, in the last year, has failed miserably. This last attempt of throwing trillions out is very japanesque. The money supply contains about 54 trillion in debt - this debt is contracting really fast, either through default or payment, and is not being renewed. I would not count deflation dead yet.

If, however, Helicopter Ben does manage to kill deflation this time then we are heading into Wiemar republic inflation. Forget Oil - get Gold Bullion stored in a foreign vault and get out of this country as it will be a mess.

Mar 22 06:23 AM

[Mad Hedge F...:]

There is another factor out there. The blogosphere has exploded with relieved comments from America’s large Persian community over the olive branch President Obama extended to Iran in an unprecedented YouTube New Year’s greeting beamed directly to the people of Iran. The Big “O” said that Iran was a great nation that should join its rightful place in the community of nations. It’s great and celebrated culture has made the world a better place. The US is committed to diplomacy with the Islamic Republic of Iran, which should not pursue terrorism. He signed off with a Persian salutation, which was nothing less than stunning. To call this a change from the Bush approach, which got us nowhere, is an understatement in the extreme. This puts a spotlight on Secretary of State Hillary Clinton’s carrot and stick approach to get Iran to dump its nuclear program. If this fails, she can use our new moderation to recruit European allies to impose sanctions if the Islamic republic goes all the way. The only reason I care about this is that fresh troubles with Iran could trigger an instant $30 spike in crude prices on the right day. This would send global markets tumbling and send gold through the roof.

Mar 22 10:33 AM

[JR Ewing:]

I think it depends on the trouble, was has gotten us out of recessions and been bullish for the stock market. I would much rather see our kids come home and have a peace dividend and investment in the United States instead of the Middle East. Peace in Iran could change the whole region for the better. Maybe if we stopped interfering and worked on our own energy we could have lower oil costs and new jobs here.


On Mar 22 10:33 AM The Mad Hedge Fund Trader wrote:

> There is another factor out there. The blogosphere has exploded with
> relieved comments from America’s large Persian community over the
> olive branch President Obama extended to Iran in an unprecedented
> YouTube New Year’s greeting beamed directly to the people of Iran.
> The Big “O” said that Iran was a great nation that should join its
> rightful place in the community of nations. It’s great and celebrated
> culture has made the world a better place. The US is committed to
> diplomacy with the Islamic Republic of Iran, which should not pursue
> terrorism. He signed off with a Persian salutation, which was nothing
> less than stunning. To call this a change from the Bush approach,
> which got us nowhere, is an understatement in the extreme. This puts
> a spotlight on Secretary of State Hillary Clinton’s carrot and stick
> approach to get Iran to dump its nuclear program. If this fails,
> she can use our new moderation to recruit European allies to impose
> sanctions if the Islamic republic goes all the way. The only reason
> I care about this is that fresh troubles with Iran could trigger
> an instant $30 spike in crude prices on the right day. This would
> send global markets tumbling and send gold through the roof.

Mar 22 11:02 AM

[JR Ewing:]

Sorry - War has gotten (not was)

Mar 22 11:04 AM

[bertil:]

I can't believe you included the Nazi Symbol here!!!!!
Are you asleep? Or ignorant?? Or what!?
Further the "comment" has of course nothing to do with the subject...
WAKE UP!!!!

Mar 22 11:15 AM